Socialist Economist Goes to WAR With PBD Over Capitalism Debate

[00:00:00] Speaker 1: So, Steve, you know, as an economist, you know, where you were famous for making quite a few different predictions, one of them being the 2008, and your work's been documented all over the place. How do you think we, the average people who read and study economists, how should we judge economists? [00:00:20] Steve: As frauds, in so many words. Not that they're conscious of their frauds, but fundamentally, all the economic theories, with the exception of the school of thought that I'm part of, which is called, just for historical reasons, called post-Keynesian. They tend to be people who got sick and tired of left-wing versus right-wing views from other economists and say, we simply want to understand how the economy works. And so there's less ideology in the post-Keynesian school. But you get Marxists at one end who think capitalism is going to give way to socialism. You get neoclassicals and Austrians at the other end who think that capitalism is the best possible social system, and those ideological biases drive their analysis more than logic and more than data do. [00:01:03] Speaker 1: Got it. And so how do you view, I've seen the work and the things you've said about Karl Marx versus Milton Friedman. Who's Karl Marx to you and who's Milton Friedman to you? [00:01:15] Steve: Pardon me? You better explain that question. [00:01:18] Speaker 1: Yeah. Who is Karl Marx to you and who is Milton Friedman? [00:01:21] Steve: Well, Karl Marx, both of them are caught up with some sense of ideology. I regard Marx as a far superior intellect to Friedman. But just like other ideological branches of economics, Marx had a set of conclusions he wished to reach. When his logic didn't reach those conclusions, he twisted his own logic. Milton Friedman does the same thing. I don't know how anybody takes him seriously when you take a look at his detailed work. The stuff he puts across at the sort of political level, the sort of standing on a podium, giving a speech level, can be persuasive. But if you look at the arguments behind his logic, they're just mythical, completely mythical. There's a wonderful put down of people like Friedman by Joseph Schumpeter, who is the great non-Orthodox Austrian economist and historian of economic thought. And he talked about what he called the Ricardian vice. He said that's when you set up a set of assumptions that leave the conclusion you wish to reach as the only possible conclusion. You're conning people that way. And that's what Friedman does. It's what Riccardo did as well. So there's a large amount of rhetoric in economics, which people outside the discipline will mistake that as logic. But it's actually trying to reach a rhetorical position. And it's a question of how clever you are with words rather than what you say actually makes any logical sense. [00:02:49] Speaker 1: So you think Milton Friedman was a con man? Do you think Karl Marx was a con man? [00:02:55] Steve: No, it's beyond saying the con man. People convince themselves of a particular set of conclusions about capitalism. It's a question of how well they reason within their own frameworks. I regard Marx as not only a far superior thinking to most people in economics, but a great logician. But when he pushed his logic, when he started including his philosophical thinking in how he analyzed the economy, he ended up contradicting what's called the labor theory of value. Now, the labor theory of value says that basically all profit comes from labor. And if you have an industry with a high amount of labor and a small amount of capital, we'll make more profit than one with a lot of capital and a small amount of labor. And this is empirically wrong. And it argues that all output comes from workers. But it also gave Marx an argument that there'd be a tendency, what he called the falling rate of profit. Now, when he used his own philosophy to apply his philosophy to economics, he ended up saying that labor is not the only source of value, machines can produce value as well. And that meant there's no tendency for the rate of profit to fall. Now, that meant he basically he proved there wouldn't be socialism. And his response was to bury his own logic because he wanted to reach the conclusion that socialism was inevitable. So there's an extent to which people twist their economics because there's a set of conclusions they wish to reach. And if their own logic doesn't reach to those conclusions, then they disrupt their own logic. And you can find that both in, you can find that in Friedman, you can find it in Paul Samuelson, you also find it in Marx. [00:04:37] Speaker 1: So is it fair to say Marx's theories, Marxism, communism miserably failed? His theories, his ideas? [00:04:45] Steve: No, no, it's not. No, it's not. [00:04:46] Speaker 1: Okay, tell us why you think it succeeded. [00:04:49] Steve: No, it didn't succeed because people outside economics, I'm not saying that socialism succeeds. I'm saying that a form of thinking about capitalism can be successful or unsuccessful. And the way we think about capitalism, which comes from neoclassical theory, is completely unsuccessful. You take a look at the theory as carefully as I have done over, you know, it's one and a half centuries of existence. They've contradicted their own logic, they contradict empirical data, and they keep on going with that same belief system regardless. So the logic inside neoclassical economics is extremely poor. Now, Marx worked out a brilliant form of logic, but he didn't like the conclusion. So his logic is great. His deductions for it contradict his own logic. So in terms of having somebody with an intellectual framing to understand the capitalist economy, I'd go with Marx any day. But not with the labor theory of value and not with most Marxists believe. [00:05:48] Speaker 1: But let's stay on that. If somebody – what countries would you say tried to follow Marxist philosophy and miserably failed? [00:05:57] Steve: The Soviet Union. [00:05:58] Speaker 1: So they miserably failed, and they were all about communism, right? They followed – [00:06:03] Steve: I'm sorry. Look, this – How do I frame this? The Soviet Union basically thought you could have a centrally controlled command economy. Now, that failed to grow anywhere near as fast as the capitalist economies did. So Marx's belief and the belief of the Soviets was that socialism would grow so much faster and produce so many more goods for the workers that it would overwhelm capitalism by being more productive and giving a better salary to the workers. In fact, that failed on that front, in fact, it wasn't the West that tore down the Berlin Wall to get into the Soviet Union. It was the opposite direction. So the system failed. But there's a brilliant Hungarian economist I'm sure you haven't heard of called Janos Kornay. Ever heard the name? I haven't. Okay. Janos Kornay was a socialist economist in Hungary, and he's asked this question, why did the Soviet Union fail? And why did capitalism succeed? And what he looked at, he said, well, in the Soviet system, of course, when the Soviet Union began, it was in a feudal society. It was Russia in 1917 still had serfs. So we're talking about a very primitive, mainly agricultural society, very, very backward. And therefore, because you had the Soviets had the ambition of industrializing Russia, every last sector of the economy needed development goods, and they were trying to centrally plan each one. And what it meant was every sector got less than it needed. So they were all resource constrained. And when you're resource constrained, the best way to meet the physical targets you're given in the five-year plan is to produce more of what you produced last year. You don't innovate. Whereas capitalism, in Kornay's analysis, is demand constrained. You've got lots of people producing cars, inadequate aggregate demand because you try to pay workers as low a wage as possible. So in that situation, you have more productive capacity than you need to supply the actual level of aggregate demand. So there's excess capacity everywhere. And the way that firms try to get the demand to come in through their doors rather than through a rival's door is by innovation. And so the constraints of capitalism give you innovation. The constraints of the Soviet system gave you no innovation. So that's what Kornay's explanation for why the Soviet system failed. Now China has studied both Marx and the Russian experience and Kornay's work as well. And they realized they had to find some way of guaranteeing innovation would occur at the level of consumer products. And they've done that. They have centrally planned laying out the infrastructure. So the roads, the rail systems you see are all state-owned and state-managed. But in things like car manufacturing, I think it's about 120 Chinese car companies at the moment. That won't last. But it means you've got 120 different companies competing for the share of the same market. They're innovating like crazy. And therefore, this Chinese system has got the best of both worlds in the sense they've got central planning for infrastructure and long-term development. And they're doing that quite brilliantly. And at the same time, they've got enormous innovation taking place in the private sector, which is all driven by profitability and capitalist motivations and so on. So in terms of the country which succeeded from a Marxian foundation, it's definitely China. [00:09:43] Speaker 1: Yeah. So if we were to judge the systems, what is the right way for us to judge economic systems if it's communism and capitalism? To judge it. So, you know, like to me, if a personal trainer comes up to me, Steve, and he says, hey, Pat, I want you to help you lose 40 pounds. But the guy's 300 pounds, 40% body fat, out of shape. But he wants to be a trainer to tell me I can help you get in shape, right? And so the average person will look at him and say, how can you get me in shape if you're out of shape yourself? What is the right way for us to judge an economical system, communism versus capitalism, to say, well, capitalism produced this, what did communism produce? Not much. And even, you know, when you're talking about China, let me finish this. When you're talking about China, China even had to go and, you know, sit down with Japan to find out how they were growing exponentially. And then finally they said, look, you got a couple of banks in China. You need a lot of banks. You need thousands of banks that are doing what they're doing. And then China finally listens and opened it up and realized they need a form of free market. Yes, they don't believe in free speech yet. They don't believe in a lot of that stuff. But they allowed guys to have ownership and that changed. And so how do you judge success between, how should we judge success between capitalism and communism? [00:11:02] Steve: Well, if you're going to use the America versus China result, China's rate of economic growth and China's lifting of people out of poverty transcends anything America's achieved over its time. So American industry has lost complexity, lost sophistication. China's increased its complexity, increased its sophistication. And since the Deng Xiaoping reforms, which are absolutely critical, occurred, you've had, you know, something like over half a billion people raised from out of absolute poverty. So there's the socialists. [00:11:36] Speaker 1: Which they embrace capitalism, right? They embrace an element of capitalism. [00:11:40] Steve: An element of capitalism. Yeah, of course. There's a tendency to be like a cardboard cutout attitude, you know, capitalism versus communism. As if there's a standard version of both. Now, of course, there's dramatic variations in capitalist nations and in communist nations. And if I had to choose a communist nation, which as well as suffering from American sanctions, is done very badly in its own form, I'd choose Cuba. Okay? Having spent some time in Cuba. China is stunning at the other extreme. And you cannot believe you're in it. They're capitalism, though. [00:12:18] Speaker 1: I would put China as capitalist because their government is communism, but they have a free market element that allows you to compete. It's not by force. You can't have an opinion. You have an ability to build a business, and they watch others succeed, and they decided to copy what was working, which is America. So did Russia, in a sense. Wouldn't you agree on those two concepts? [00:12:39] Steve: No, I wouldn't. [00:12:40] Speaker 1: So you would say that Russia and China are still 100% communist nations? [00:12:44] Steve: No, I'm not saying 100%. This is why I think you're trying to put things in black and white pictures when everything is shades of brown and hopefully colors. [00:12:51] Speaker 1: Can you define what communism means to you? What is the definition of communism to you? [00:12:56] Steve: Look, we don't have communism anywhere on the planet, okay? Because when you look at Marx-defined communism is once you get to the stage where people, you know, each according to their ability, from each according to their ability, to each according to their needs. That sort of idealist system in the future. What you have is socialist versus capitalist, and if the socialist, if you had to get a pure statement of the ideologies of both systems, capitalism basically says, you know, everybody out for themselves, get the best possible gain you can for yourself, and out of the self-interest and self-obsession, you'll get the best possible outcome. [00:13:35] Speaker 1: That's your definition of capitalism? That it's only self-interest? [00:13:39] Steve: It's not the one that I heard. [00:13:41] Speaker 1: It's mathematically impossible. It's impossible if it's only self-interest for you to succeed. Yes, that's true. That's true. It's impossible. [00:13:47] Steve: That's an important point. Both systems are impossible in their extremes, and there's a tendency in Western thinking to go left versus right, one extreme versus another extreme. Not necessarily. [00:13:57] Speaker 1: I'm more interested in being specific. You've been doing this for 50 years. I've talked to a lot of different economists. I enjoyed my conversation with Richard Wolff, who's a socialist. I've spoken to Slava Zizek, who was more of a communist himself, and we had a very good conversation. I've sat down with Ray Dalio. We've sat down with a lot of billionaires. We've sat down with a lot of heads of states and presidents. If we were to put a percentage to it, Steve, and say taxes, because to me, capitalism, socialism, communism can be tied to percentage of taxes. Communism is the state owns everything, and they seize the means of production, so it's 100% taxes. You don't have the ability to build anything, and maybe capitalism is going to be a lower rate of taxes. You pick and choose where you want it to be, 10% flat, 30% or some states want to do progressive. I know you guys in your state just launched that if somebody decides to sell, you could end. Your capital gains just went to the roof, depending on what time frame you sell it in, and then socialism could be in the middle. How would you describe those three economical systems, specifically tied to percentage that people pay in taxes? Because that's how clear would make it for the average person. [00:15:11] Steve: I think it's a percentage of the services that are provided are provided by the state rather than provided by the market. And in that sense, socialist economies tend to be 50-50 or more provided by the state. Capitalists, less than 50-50. But as time has gone on, there's more and more things that are needed for a sophisticated society that are what you can call public goods. So, for example, health. My health affects your health. If I come down with a communicative disease, you're going to catch it. So, there's ways in which that's a public good rather than just a private good. Now, there's an enormous range of things that are like that now. Education. We all benefit from an educated workforce. We suffer from a dumb one. Education is a public good. Health is a public good. Transportation, to some extent, is a public good because if it's easy for workers to get from one point to another without paying a great deal of money, then it makes it cheaper to hire those workers because your wages don't have to cover high transportation costs for them to get to the factories. So, there's a division between what is a public good and is better provided in a public environment and what is a private good, things like now television sets and fancy restaurants and so on, which are best provided by the private sector. And there's also a time dimension to it. When you're looking at normally ordinary consumer goods, there's plenty of potential for a manufacturer to make a profit out of things like television sets and so on. You can't make a profit out of the same scale of the sewerage systems. If you leave those sorts of things for profit-oriented providers in the first instance to provide, you'll have less sewerage than they need. So, I think that's really, it's a division between the extent to which goods are provided by the state system as just part of the fact that you're a citizen versus having to pay for them. And the socialist economies will have more of that and I think that's actually, in effect, that's the trend we've been going through over time because 150 years ago, you didn't worry about sewerage. You had shit running down, you know, the streets of London into the Thames River. If you move to a more advanced and sophisticated society, we can't tolerate that and that means you have the state providing those services. If you leave it to the private sector, those services will break down. [00:17:26] Speaker 1: Those services would break down. I mean, a lot of people would say anything produced by the government, it's shittier customer service. They treat you horrible. They can make you wait as long as possible. And free market, if they do do that, they get complaints and those complaints hurt their business. But the state doesn't have competition. What would the state worry about if they don't treat you well? They have a different energy when they talk to certain people. I was in the U.S. Army. I was in the military and I've dealt with the state for a long time. I've never seen any customer service on how they treat people be better that's ran by the state than ran on the free market side. [00:18:07] Steve: When I was in China the first time, which was 81, 82, I ran a seminar between Australian journalists and Chinese journalists, which was observed by a large number of students of journalism in China. This is the beginning of China having a, not enough of a free press, but a press system. And the one thing the students were most fascinated by that I unfortunately did not give them information on for various reasons was the ombudsman system that Australia had, which had copied from Sweden. And the ombudsman system put controls and monitoring sets on public servants. Now, it seems that China has implemented that. If you become a bureaucrat in China, you have a set of guidelines that you're required to reach. And if you don't reach them, you either get sacked or you don't get promoted and you get ossified. And that seems to be a large part of why the public services in China seem extremely well provided and certainly better than what you get in America. [00:19:05] Speaker 1: You said certainly better than what you get in America. Transportation, public transportation. So you feel service is going to be better rendered by the government than free market? What does the government lose? They don't have an alternative competition. [00:19:22] Steve: The best example of free market failing America is your health system. [00:19:26] Speaker 1: Would you agree with that? No, I don't think so. I think we have a great health system. I think- [00:19:30] Steve: Do you now? It costs three times as much as the rest of the world. Do you think- Do you think- You pay about three times as much per head for health as most Western nations do. [00:19:41] Speaker 1: Our, you know, capita per GDP is also higher. If Australia was a state with us, you would be number 40. You know, if UK was a state, it would be behind Mississippi at 51. So it's also capitalism's brought more people out of poverty in US than any other country in the world. I'm surprised you're fighting this. But let me- [00:20:03] Steve: Look, I'm surprised you're fighting it as well because you're making claims. It's the reason why they live here. [00:20:07] Speaker 1: I escaped Iran to come live in America because I have an incredible life. And by the way, I'm surprised the level of tension you have in defending communism, a failed economical system. I'm surprised. [00:20:22] Steve: I'm surprised by this stuff. Mate, you are not letting- This is- I'm sorry, but I'm finding this a very black and white conversation when I prefer to serve work in the shades of grass. [00:20:30] Speaker 1: Feel free to make it colorful. I mean, go ahead if you want to make it colorful. [00:20:33] Steve: The color is- I mean, I meant to mention about the medical. Now, you say the medical system in the States is fine. You have a lower life expectancy than virtually every other major Western nation. I don't know the actual numbers, but I think the life expectancy in America is of the order of about 74 or 78, I think it is. And most of the rest of the world, it's 84. And you pay about three times as much per capita for the health system. And the reason health works very badly as a private good is because when you find you're dying of a fatal disease, you don't have any bargaining power. If you find you've got a disease you need the best doctor for, you'll pay the best doctor's price no matter what. [00:21:09] Speaker 1: But I think a lot of people would say on that side, how do you like Robert Kennedy? How do you feel about RFK? [00:21:14] Steve: I think he's a fool. [00:21:15] Speaker 1: You think he's a fraud? [00:21:18] Steve: I think he's weird. I mean, his attitude is the vaccines, the idea that you should catch diseases and the idea you can have herd immunity from exposure to diseases. Do you agree with him? None of that was true. [00:21:29] Speaker 1: Do you agree with him? Do you agree with him on the types of food that we eat in America is a lot worse than other places? Oh, yeah. [00:21:39] Steve: That is definitely right on. [00:21:41] Speaker 1: Okay. So you agree with him on that. So what do you disagree with him on? So you don't think that the studies that show that in the last 50 years, and this is the part that you and I may actually agree on, you don't think, Steve, that these big pharmaceutical companies have benefited from increasing from the average kid would get five vaccines, three vaccines back 50 years ago. And now they're getting anywhere between 50 to 72 vaccines. You don't think financially that's benefited big pharma in America? [00:22:17] Steve: Well, certainly it has. But now you're being a critic of capitalism. I am. I am. I am with pharma. [00:22:22] Speaker 1: I am with pharma because they forced down. You see, to me, I have the ability to reason and see the flaws in certain areas and weaknesses. I'm very comfortable doing that. That's not something I'm uncomfortable with. I do think with the help of the state, they forced these vaccines on kids. And if we go look at stats, because I know you like stats as an economist, it's not hard to see what number of kids were getting autism 50 years ago versus today. Have you looked at those numbers? [00:22:53] Steve: I'm not a political person, and I've seen arguments from people I know who are medical researchers say those stats are nonsense. I'm certainly not going to get involved in saying, you know, I mean, the anti-vaccine, the anti-vaccine, like I'll give you one reason why I'm pro-vaccines. My father had polio. I didn't. Okay. And the, but certainly for big pharma making money out of unnecessary drugs, for sure. And that's one reason you need a state system. And it may be that health in general is better at the state level where it's provided and state health is guaranteed in that sense, rather than being something you can only afford an operation if you have the money for it, or you have the insurance cover from your private company, which is very much an American thing. It's not the rest of the world. [00:23:41] Speaker 1: Got it. But, but when you're looking at numbers, I mean, these are numbers that's coming from the state, an organization you trust, right? [00:23:50] Steve: Hang on, please, please, please, please. You're doing a caricature of me here. I'm a critic of the state. I've worked in the state. I used to regard the Department of Trade, which I worked in at one stage as a retirement center. [00:24:02] Speaker 1: Are you familiar with the CDC? [00:24:05] Steve: The Center for Disease Control? Yes. [00:24:07] Speaker 1: Okay. So this is coming from CDC. You brought a vaccine. Nowhere in my notes was I planning on going into vaccines. I was going to, you know, you talk about health care. Well, you asked me about John Kennedy. [00:24:17] Steve: What do you expect me to say back? No, no, I don't know. I'm glad you did. [00:24:19] Speaker 1: I'm glad you, but since you did, let's look at some numbers because you're a numbers guy. You're an economist. So in 1970s in America, according to CDC, one in 10,000 children had autism. 1995 was one in 500. 2000 was one in 150. 2010 is one in 68. 2020 is one in 36. The latest is one in 30. About 4.9% of boys today are identified as autistic. 1.4% of girls. How do you think that happened? Should we not consider vaccine as possibly one of the reasons for it? [00:24:55] Steve: We can probably think sunshine or God knows what else is part of the factor. [00:24:57] Speaker 1: You think sunshine caused autism? [00:24:59] Steve: Look, I'm just saying it's a silly argument and I'm not going to, I don't see any point in having this conversation. [00:25:04] Speaker 1: But you brought it up and- You brought up John Kennedy. [00:25:08] Steve: I mentioned vaccines as well. You said, do I like John Kennedy? I instantly said, I had no intention of discussing vaccines. Let's talk about something that's actually my area of expertise. [00:25:17] Speaker 1: No, no, but you brought this up and you had strong opinions and I'm just sharing with you for- You said John F. Kennedy. [00:25:21] Steve: What do you expect me to say if you raised Robert Kennedy? [00:25:24] Speaker 1: Yeah, I think Robert Kennedy, he's a guy that brought up the concerns- [00:25:27] Steve: Why did you raise Robert Kennedy? [00:25:29] Speaker 1: Why did you raise him in the first place? I'll tell you exactly why I raised him. Because you said the healthcare is the issue in America. And I said he brought up the food that we eat in America. It's a lot more processed than other states. I was going in the food direction. You went to vaccine. I never brought up vaccine. You brought up vaccine. [00:25:44] Steve: Okay, well, let's go back to food. But no, let's stay on that. [00:25:47] Speaker 1: Let's stay on vaccine if you brought it up and let's just move on past this because you brought it up. How do you feel when you see a data if an average person like me or you who is not in this space, you're a thinker, right? And if you see we go from 1 in 10,000 autistic rate to now 1 in 31 according to CDC, not pharma, what do you think could be those reasons? [00:26:08] Steve: Different definitions of autism. [00:26:11] Speaker 1: Such as- [00:26:11] Steve: I have, like, you know, if I think back to my school class 50 years ago, there's about half a dozen kids I could classify as autistic today who wouldn't have been called that 50 years ago. But in terms of, I have vaguely seen some research contradicting the argument there's any relationship between vaccines and autism, and I have no expertise and I have no interest in the topic either. [00:26:33] Speaker 1: I figured that makes sense why you wouldn't have any interest. When we set out to create a shoe that blends comfort, function, and luxury, we had the choice to make it fast, we had the choice to make it cheap. 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